Citibank 2014 Annual Report Download - page 314

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Oceanografia Fraud and Related Matters
On February 28, 2014, Citigroup announced that it was adjusting downward
its earnings for the fourth quarter of 2013 and full year 2013 by $235 million
after tax ($360 million pretax) as a result of a fraud discovered in a Petróleos
Mexicanos (Pemex) supplier program involving Oceanografía SA de CV
(OSA), a Mexican oil services company and a key supplier to Pemex. During
the first quarter of 2014, Citigroup incurred approximately $165 million of
incremental credit costs related to the Pemex supplier program. The vast
majority of the credit costs were associated with Citigroup’s $33 million
of direct exposure to OSA as of December 31, 2013 and uncertainty about
Pemex’s obligation to pay Citigroup for a portion of the accounts receivable
Citigroup validated with Pemex as of year-end 2013 (approximately
$113 million). The remaining incremental credit costs were associated with
an additional supplier to Pemex within the Pemex supplier program that was
found to have similar issues.
In the United States, the SEC has commenced a formal investigation
and the Department of Justice has requested information regarding
Banamex’s dealings with OSA. Citigroup continues to cooperate fully with
these inquiries.
In Mexico, the Mexican National Banking and Securities Commission
(CNBV) conducted an in situ extraordinary review of the facts and
circumstances of the fraud. As a result of its review, the CNBV issued a
corrective action order that must be implemented by Banamex and imposed
a fine of approximately $2.2 million. The CNBV continues to review
Banamex’s compliance with the corrective action order. In addition, the
CNBV has initiated a formal process to impose additional fines on Banamex
with respect to the manner in which OSA’s debt was recorded by Banamex.
Citigroup continues to cooperate fully with all of the inquiries related to
the OSA fraud.
Derivative Actions and Related Proceedings: Beginning in April 2014,
Citigroup has been named as a defendant in two complaints filed by its
stockholders seeking to inspect Citigroup’s books and records pursuant to
Section 220 of Chapter 8 of the Delaware Corporations Law with regard to
various matters, including the OSA fraud. On September 30, 2014, in the
action brought by Oklahoma Firefighters Pension & Retirement System, the
Master of the Court of Chancery issued a final report recommending that the
court enter an order granting in part and denying in part plaintiff’s request
for inspection. On October 7, 2014, Citigroup filed a notice of exception to
the final report. Additional information concerning these actions is publicly
available in court filings under the docket numbers C.A. No. 9587-ML
(Del. Ch.) (LeGrow, M.) and C.A. No. 10468-ML (Del. Ch.) (LeGrow, M).
Parmalat Litigation and Related Matters
On July 29, 2004, Dr. Enrico Bondi, the Extraordinary Commissioner
appointed under Italian law to oversee the administration of various
Parmalat companies, filed a complaint in New Jersey state court against
Citigroup and Related Parties alleging, among other things, that the
defendants “facilitated” a number of frauds by Parmalat insiders. On
October 20, 2008, following trial, a jury rendered a verdict in Citigroup’s
favor on Parmalat’s claims and in favor of Citibank, N.A. on three
counterclaims. Parmalat has exhausted all appeals, and the judgment is now
final. Additional information concerning this action is publicly available
in court filings under the docket number A-2654-08T2 (N.J. Sup. Ct.).
Following the jury verdict awarding $431 million in damages on Citigroup’s
counterclaim, Citigroup has taken steps to enforce that judgment in the
Italian Courts. On August 29, 2014, the Court of Appeal of Bologna affirmed
the decision in the full amount of $431 million, to be paid in Parmalat
shares. The judgment is subject to appeal by Parmalat.
Prosecutors in Parma and Milan, Italy, have commenced criminal
proceedings against certain current and former Citigroup employees (along
with numerous other investment banks and certain of their current and
former employees, as well as former Parmalat officers and accountants).
In the event of an adverse judgment against the individuals in question,
the authorities could seek administrative remedies against Citigroup.
On April 18, 2011, the Milan criminal court acquitted the sole Citigroup
defendant of market-rigging charges. The Milan prosecutors have appealed
part of that judgment and seek administrative remedies against Citigroup,
which may include disgorgement of 70 million Euro and a fine of 900,000
Euro. On April 4, 2013, the Italian Supreme Court granted the appeal of
the Milan Public Prosecutors and referred the matter to the Milan Court
of Appeal for further proceedings concerning the administrative liability, if
any, of Citigroup. Additionally, the Parmalat administrator filed a purported
civil complaint against Citigroup in the context of the Parma criminal
proceedings, which seeks 14 billion Euro in damages. The trial in the Parma
criminal proceedings is ongoing. Judgment is expected during the summer
of 2015. In January 2011, certain Parmalat institutional investors filed a
civil complaint seeking damages of approximately 130 million Euro against
Citigroup and other financial institutions.